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South Korea central bank says it will keep policy easy to support economy, structural overhaul

Fri, Apr 29, 2016 - 11:18 AM

South Korea's central bank plans to keep monetary policy accommodative for a while, it said in a biannual report on Friday, as the economy grows "very gradually" and inflationary pressures remain low.

PHOTO: REUTERS

[SEOUL] South Korea's central bank plans to keep monetary policy accommodative for a while, it said in a biannual report on Friday, as the economy grows "very gradually" and inflationary pressures remain low.

The Bank of Korea (BOK) said it will work cautiously to provide stable macroeconomic conditions for ongoing corporate structural reform, ensuring credit reaches the right companies when they need it.

"Should risks of a credit crunch grow too excessively in the structural reform process that normally-operating small to medium-sized businesses have difficulty obtaining liquidity, we will find measures to address this," the central bank said in its twice-yearly Monetary Policy Report.

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The report comes after President Park Geun-hye said that allowing the BOK to undertake some form of quantitative easing should be considered to ensure credit goes where it is needed while corporate structural reform takes place.

Deeply-troubled industries such as shipping are currently going through a restructuring overhaul that has sparked worries over stability and joblessness as workers are laid off.

Policymakers have said they see no risks of instability from structural reform materialising yet, but are monitoring the situation closely.

The bank will also monitor for possible credit or asset price imbalances forming due to a prolonged state of easy monetary policy, the report added. Record-low interest rates have fuelled household borrowing with South Koreans actively buying and selling property.

The base policy rate is currently at 1.50 per cent.

Although expected to remain low for a while, inflation will gradually approach the central bank's target of 2 per cent in the second half of the year, the report said, reiterating comments made by BOK Governor Lee Ju-yeol earlier this month after rates were kept steady for a 10th month.

Low global commodity prices have kept South Korean inflation weak, with a third cut to city gas rates this year from May 1 expected to keep the trend going.

The central bank report said that exports, which have been falling since January last year, are unlikely to recover in the near term.

The latest data for exports and inflation will be published on May 1 and 3, respectively.